Nik-San Engineering Co. Ltd., Mumbai V. The Dy. CIT, Circle - 2(1)(1), Baroda

ITA 2787/AHD/2017

• Counselvise Citation: [2019] 113 COUNSELVISE.COM (IT) 6385 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-10-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 08-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Notional interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER 1. ./ITA NO.2786/AHD/2017 2. ./ITA NO.2787/AHD/2017 ( / ASSESSMENT YEARS : 2013-14 & 2014-15 RESPECTIVELY ) 1 - 2 . NIK-SAN ENGINEERING CO.LTD. 201, 204, VIKAS CHAMBERS JN. OF LINK & MARVE ROAD MALAD WEST, MUMBAI / VS. 1 - 2 . THE DCIT CICLE-2(1)(1) AAYAKAR BHAVAN BARODA ./ ./ PAN/GIR NO. : AABCN 8963 D ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : WRITTEN SUBMISSION / RESPONDENT BY : SHRI L.P. JAIN, SR.DR / DATE OF HEARING 25/10/2019 !'# / DATE OF PRONOUNCEMENT 20/11/2019 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE SEPARATE ORDERS OF THE COMMIS SIONER OF INCOME TAX (APPEALS)2, VADODARA [CIT(A) IN SHORT] VIDE APPEAL NOS.CIT(A)/VADODARA-2/10145/16-17 AND CIT(A)/VADODA RA-2/10209/16- 17 DATED 20/10/2017 AND 05/09/2017 ARISING IN THE ASSESSMENT ORDERS PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(H EREINAFTER REFERRED TO AS 'THE ACT') DATED 18/02/2016 AND 19/05/2016 R ELEVANT TO ASSESSMENT YEARS (AYS) 2013-14 & 2014-15 RESPECTIVE LY. ITA NOS.2786 & 2787/AHD/2017 NIK-SAN ENGINEERING CO.LTD. VS. DCIT ASST.YEARS 2013-14 & 2014-15 - 2 - 2. SINCE THE ISSUES ARE INTER-CONNECTED, TH ESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.2786/AHD/2017 HAS RAISED THE FOLLOWING GROUND OF APPEAL:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, VA DODARA HAS ERRED IN LAW AND IN FACTS IN UPHOLDING THE ACTI ON OF THE LD. ASSESSING OFFICER IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.33,37,941/- HOLDING THE SAME TO BE FOR NON-BUSIN ESS PURPOSES. THE DISALLOWANCE BEING MADE IN DISREGARD TO FACTS AVAILABLE AND BAD IN LAW IS PRAYED TO BE ALLOWED. 2. YOUR APPELLANT CRAVES THE LIBERTY TO ADD, ALTER, AM END OR DELETE ANY OR ALL THE GROUNDS(S) OF APPEAL STATED ABOVE. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAD FILED ITS RETURN OF INCOME U/S.139(1) OF THE ACT ON 26 /11/2013 DECLARING TOTAL INCOME OF (-) RS.3,68,34,517/-. DURING THE COURSE OF ASSESSMENT PROCEEDING, ON VERIFICATION OF THE BALANCE SHEET IT IS SEEN THAT D URING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS GIVEN SHORT TERM LOA N TO VARIOUS PARTIES WHICH AMOUNT TO RS.2,43,95,630/- AND SHORT TERM ADV ANCES TO M/S.CHAUDHARY GLOBAL LTD. FOR RS.1,50,00,000/-. FU RTHER, IT IS ALSO SEEN THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST TO T HE PARTY WHILE THE ASSESSEE IS PAYING HEAVY INTEREST TO BANK AND OTHER ON LOAN AND ADVANCES IT HAS RECEIVED. SO VIDE ORDER SHEET ENTRY DATED 1 8/01/2016 FOR THE REASON MENTIONED ABOVE THE A.R. OF THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO ITA NOS.2786 & 2787/AHD/2017 NIK-SAN ENGINEERING CO.LTD. VS. DCIT ASST.YEARS 2013-14 & 2014-15 - 3 - WHY THE NOTIONAL INTEREST AT THE RATE OF 12% ON THE TOTAL LOAN AND ADVANCES AS MENTIONED ABOVE SHOULD NOT BE WORKED OU T AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN RESPONSE TO THE SAME THE ASSESSEE VIDE ITS LETTER DATED 01/02/2016 SUBMITTED THE DETAILS A ND ARGUMENT IN RESPONSE TO THE SPECIFIC QUERY RAISED AS ABOVE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS GIVEN ADVANCES TO THE FOLLOWING PERSONS SR.NO. PARTICULARS AMOUNT 1. CHAUDHARY GLOBAL LTD. 1,50,00,000 2. CHAMPION ADVANCES MATERIALS PVT.LTD. 5,54,000 3. VIDHATA TOWERS PVT.LTD. 15,37,000 4. GATEWAY LEASING PVT.LTD. 45,40,876 5. HANUMAN IRON AND STEEL PVT.LTD. 27,70,000 6. MIRAJ STEELS PVT.LTD. 90,00,000 7. RSA ENTERPRISES 27,754 8. STRATA EXIM PVT.LTD. 37,50,000 9. SUNITA SINGHANIA 22,16,000 COPY OF LEDGER ACCOUNT OF PARTY MENTIONED IN SR.NO. 1 AND 9 WERE SUBMITTED VIDE LETTER DATED 14.12.2015 AS PER ANNEX URE 9. FURTHER, LEDGER ACCOUNT FROM SR.2 TO 9 IS ENCLOSED AS PER ANNEXURE-4. IT IS ALSO SUBMITTED THAT ASSESSEE HAS RECEIVED INT EREST ON FROM THE FOLLOWING PARTIES TO WHOM LOANS WERE GIVEN ITA NOS.2786 & 2787/AHD/2017 NIK-SAN ENGINEERING CO.LTD. VS. DCIT ASST.YEARS 2013-14 & 2014-15 - 4 - SR.NO. PARTICULARS INTEREST AMT. 1. CHAMPION ADVANCED MATERIALS PVT.LTD. 60,000 2. GATEWAY LEASING PVT.LTD. 491,792 3. HANUMAN IRON AND STEEL PVT.LTD. 270,000 4. SUNITA SINGHANIA 240,000 FURTHER, IN RESPECT TO LOANS GIVEN OTHER PARTIES, I T IS HUMBLY SUBMITTED THAT THE ABOVE ADVANCES HAVE BEEN MADE OU T OF OWN FUNDS WHICH WERE MORE THAN SUFFICIENT TO COVER THE ADVANCES MADE AS SHOWN ABOVE. THE TOTAL AMOUNT AVAILABLE TO THE ASSESSEE COMPANY, WHICH IS FREE OF INTEREST, IS AS UNDER: PARTICULARS AS ON 31.3.2012 AS ON 31.3.2013 CAPITAL 4,69,16,000 4,69,16,000 RESERVES & SURPLUS 11,80,56,408 9,72,02,497 TOTAL 16,49,72,408 14,41,18,497 AS CAN BE SEEN FROM THE ABOVE, THE ASSESSEE HAD SUF FICIENT INTEREST FREE FUNDS AVAILABLE AT ITS DISPOSAL OF MAKING THE ABOVE ADVANCES. IT IS SUBMITTED THAT ONCE MONIES ARE AVAILABLE, IT IS FOR THE ASSESSEE TO TAKE A BUSINESS DECISION FOR APPLICATION OF FUND S. WHERE THERE ARE BOTH BORROWED FUNDS AS ALSO INTEREST FREE FUNDS , DISCRETION LIES IN THE HANDS OF THE ASSESSEE FOR UTILIZATION OF THO SE FUNDS. RELIANCE FOR THAT PURPOSE IS PLACED ON THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOMBERS OF INDIA LTD . VS. COMMISSIONER OF INCOME-TAX 134 ITR 219. IT WAS FUR THER SUBMITTED THAT THE VIEW TAKEN BY THE CALCULTTA HIGH COURT HAD FOUND APPROVAL BY THE SUPREME COURT IN EAST INDIA P HARMACEUTICAL WORKS LTD. VS. COMMISSIONER OF INCOME-TAX 224 ITR 6 27 (S.C.). ITA NOS.2786 & 2787/AHD/2017 NIK-SAN ENGINEERING CO.LTD. VS. DCIT ASST.YEARS 2013-14 & 2014-15 - 5 - 5. THE LD. ASSESSING OFFICER WAS NOT AGREED WIT H THE CONTENTION OF THE ASSESSEE AND MADE ADDITION OF RS.33,37,941/- HOLDIN G THAT ASSESSEE HAD DIVERTED ITS BUSINESS MONEY FOR OTHER THAN BUSINESS PURPOSES, THEREFORE SAME ARE NOT ALLOWABLE. 6. AGAINST THE SAID ORDER OF THE ASSESSING OFFICER, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ACTION OF THE AO. 7. NOW, ASSESSEE HAS COME IN APPEAL BEFORE US AND NON-APPEARED ON BEHALF OF THE ASSESSEE BUT WRITTEN SUBMISSIONS ARE FILED BEFORE US. AS WE CAN SEE, FOR AY 2013-14, ASSESSEE HAS HAVING SHARE CAPITAL OF RS.4,69,000 AND RESERVES & SURPLUS OF RS.11,80,56,4 08 WHICH COMES TO TOTAL AT RS.16,49,72,408/- AND ADVANCES WERE GIVEN TO THE TUNE OF RS.2,93,14,754/- FOR WHICH NO INTEREST WAS CLAIMED. IN SUPPORT ITS CONTENTION, ASSESSEE RELIED UPON THE ORDER OF CO-OR DINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.2421/AHD/2016 FOR AY 2012-13 ORDER DATED 01/08/2018 WHEREIN SIMILAR FACTS AND CIRCUMST ANCES RELIEF WAS GRANTED TO THE ASSESSEE WITH THE FOLLOWING OBSERVAT ION: 4. WITH THE ASSISTANCE OF THE ID.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE ASSE SSMENT ORDER WOULD INDICATE THAT THE ASSESSEE HAS DEMONSTRATED B EFORE THE ID.AO THAT IT HAS GIVEN A SUM OF RS.3,42,50,000/- TO THES E FOUR ENTITIES/PERSON. HOWEVER, IT HAS A HUGE SURPLUS OF MORE THAN RS.16 CRORES IN THE SHAPE OF CAPITAL, RESERVES AND SURPLU S ON WHICH NO INTEREST EXPENDITURE WAS CLAIMED. THUS, THE CASE OF THE ASSESSEE WAS ITA NOS.2786 & 2787/AHD/2017 NIK-SAN ENGINEERING CO.LTD. VS. DCIT ASST.YEARS 2013-14 & 2014-15 - 6 - THAT OUT OF THESE INTEREST FREE FUNDS, IT COULD BE PRESUMED THAT INTEREST FREE ADVANCES WERE GIVEN. WE ALSO NOTICED THAT THOUGH THE ASSESSEE HAS CASH CREDIT AND UNSECURED LOANS TO THE TUNE OF RS.23.18 CRORES, BUT WE FIND THAT NON-INTEREST BEARING FUNDS WAS TO THE EXTENT OF RS.16.30 CRORES AS ON 31.3.2011 AND RS.16.49 AS ON 31.3.2012. THE INTEREST FREE FUND HAS AN INCREASING TREND. THE SE INTEREST FREE FUNDS COULD EASILY TAKE CARE OF INTEREST FREE ADVAN CES AMOUNTING TO RS.3.42 CORES. IN ORDER TO FORTIFY OURSELVES, WE MA KE REFERENCE TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BOM ) AND CIT VS. REGHUVIR SYNTHETICS LTD., 354 ITR 222 (GUJ). THEREF ORE, WE ALLOW THIS GROUND OF APPEAL AND DELETE ADDITION OF RS.24, 48,592/-. 5. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED CONFIRMATION OF ADDITION OF RS.74,177/-, BUT THE ID.COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL, HENCE, IT IS REJECTED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. THUS, IN PARITY WITH THE AFORESAID ORDER OF THE CO-ORDINATE BENCH, WHEREIN JUDGEMENT(S) OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD. 354 ITR 222 (GUJ.) AND HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE U TILITIES AND POWER LTD. 313 ITR 340 (BOM.) HAVE BEEN FOLLOWED. THUS, WE FIND MERIT IN THE CASE OF THE ASSESSEE AND APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 2786/AHD/2017 FOR AY 2013-14 IS ALLOWED. ASSESSEES APPEAL IN ITA NO.2787/AHD/2017 FOR AY 20 14-15 ITA NOS.2786 & 2787/AHD/2017 NIK-SAN ENGINEERING CO.LTD. VS. DCIT ASST.YEARS 2013-14 & 2014-15 - 7 - 10. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUND OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, VAD ODARA HAS ERRED IN LAW AND IN FACTS IN UPHOLDING THE ACTI ON OF THE LD. ASSESSING OFFICER IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.23,79,066/- HOLDING THE SAME TO BE FOR NON-BUSIN ESS PURPOSES. THE DISALLOWANCE BEING MADE IN DISREGARD TO FACTS AVAILABLE AND BAD IN LAW IS PRAYED TO BE ALLOWED. 2. YOUR APPELLANT CRAVES THE LIBERTY TO ADD, ALTER, AM END OR DELETE ANY OR ALL THE GROUNDS(S) OF APPEAL STATED ABOVE. 11. SINCE THE IDENTICAL ISSUE IS INVOLVED IN THI S APPEAL AS WELL. THUS, IN PARITY WITH ABOVE PARA OUR VIEW IN ITA NO.2786/ AHD/2017 FOR AY 2013-14 (SUPRA) ABOVE SHALL APPLY MUTATIS MUTANDIS TO THE APPEAL CAPTIONED ABOVE. AS A RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.2787/AHD/2017 FOR AY 2014-15 IS ALLOWED . 12. IN THE COMBINED RESULT, BOTH THE APPEALS OF TH E ASSESSEE ARE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 20 /11/2019 SD/- SD/- ( WASEEM AHMED ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD; DATED 20/11/2019 &.., .(.. / T.C. NAIR, SR. PS ITA NOS.2786 & 2787/AHD/2017 NIK-SAN ENGINEERING CO.LTD. VS. DCIT ASST.YEARS 2013-14 & 2014-15 - 8 - !'#' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-2 VADODARA 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 30.10.2019 ( DICTATION-PAD 5- PAGES ATTACHED AT THE END OF THI S FILE ) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 05.11.2019/19.11.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.20.11.2019 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.11.2019 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER